So last week, I told you about the first step about getting real with your finances. You have to be honest with yourself about where your money is coming from and where your money is going. This first step is one of the hardest things to do! Once you sit down and figure out how much you are spending and how much you are making, you can move on to your second step.
Just so you know, you may not figure out step 1 in a day or a week. You really have to pay attention, record your expenses and record your income. If you haven’t done this in the past, sitting down and estimating is NOT the right idea. You want REAL numbers. Pull out your bank statements. If you are using cash and have no clue where the cash went, you will have to keep all your receipts.
So now you know how much your making and how much your spending. What is next?
Here is where it becomes hard. I am going to ask you to do something that most of the people that I have ever dealt with can’t do alone. Force yourself to do this. It is very eye opening and remember that this is your relationship with money. Not a budget, not a list.
Make a list of all necessary expenses from your recently created “get real list of expenses” . By necessary, I mean the expenses that you must have to sustain your life and not get arrested. (i.e. you could go naked, but you don’t want to end up in jail)
What expenses must you have to sustain your life? I will give you some examples of life sustaining expenses:
- Food
- Clothing
- Shelter
- Heat
- Water
- Electricity
(we will not be looking at debt for this week)
I will give you some examples of non life sustaining expenses:
- TV
- Internet
- Cell Phone
- Entertainment
- Gym Membership
Now, I know you are thinking is she really going to ask us to not include these things in my budget? Absolutely not. We will get to these. However, to really understand your finances, you must understand what your basic life necessities really cost you. It put things into prospective. Let me explain why – you can look at your basic needs in your budgets as the foundation of your relationship with money. It is what you must put into the relationship. We will get to the “extras” or the “wants”.
Here is a way to look at: Just like in a marriage, you need to know what basic needs you have to make the relationship work. So if you are trying to make a marriage work, you say you want love, respect, yadda yadda. Those things have to be taken care of first. Then you can say you want to go to have date night every other Saturday. Same thing with your money. You want to do this or do that, but your basics have to be taken care of first.
So now that you have this real list of what you need to sustain your life, compare that to your income. What percentage of your income is needed to take care of your basics? Can you reduce your basics costs? Is your basic expenses more than 60% of your income?
To be continued…
Alison says
Okay, I am ready to learn so I will stay tuned. My husband says that he is ready for me to stay home but I am worried about the finances. We have been taking turns staying home with our son for a year and haven’t had any child care so we are at the end of rope for a solution. Can’t wait to hear! If I didn’t have the worst sense of direction ever, I would think about joining Jamie’s husband delivering pizzas.
Jamie says
I have been using mint.com for about 2 years and I found that my basic housing expenses only including mortgage, taxes, insurance, sewer, electic, water, and gas are 93.68% of my income. My husband stays home with our daughter during the day and works Dominos delivery sporadically at night to pay for our food but we are obviously in over our heads. Unfortunately we are in a position where our home is worth $40,000 less then what we owe and we are stuck in expensive NJ :(
Alison says
Okay, since you are doing this wonderful segment…I have questions. I started a spreadsheet that gave me a list of all of the bills like electric, gas, trash, water, phone, mortgage, insurance, taxes, ect. We do also have internet listed but it was supported by my husband’s office until this year :( I have done this for the past year to track the differences in the months and see if there is enough room in the budget for me to quit my job and stay home with my son without going into debt. I have lots of information but no idea if we can really do it. How do you actually figure it out? If I add up everything that isn’t my credit card bills, it is only $5,000-$6,000 left in my husband salary after taxes and bills. I can’t figure out how to cut more out of the budget and expenses to stay home with my little one. Any pointers?
Shannon says
Alison,
Hang with me, in the next few weeks i will be writing all about how to do it :)
Briana says
Great way to put it! I’m scared to look at mine in a pie chart!
Peggy says
Thanks for this Shannon. I am personally struggling to get myself together financially. Can’t wait for next week.